How does alpha work?

Alpha (α) is a term used to compare the performance of securities. You often compare your portfolio to an index to estimate whether you have outperformed the market.

How is Alpha calculated?

With alpha you measure the difference between performances. Within PDT it is possible to compare your portfolio performance with general indices such as the AEX, S&P500 or the MSCI All World. In the example below, an alpha (difference) of 1,39% was achieved on the S&P500 and the benchmark was therefore beaten!

Within PDT we also show how a sell decision turned out. To do this, we make a comparison between your portfolio performance and the effect performance. The example below shows an alpha of -2.06%, by comparing the performances. So we think that the sell decision on June 5, 2023 until today has had a negative impact on your final portfolio performance.

To calculate the effect performance in a fair manner, we create a simulation as if you had purchased the effect. In this way, on the sell date, we purchase a maximum of the security with the portfolio value at that time. We then buy the security with each deposit and sell it upon withdrawal. Potential profit is built up by changing the security price and exchange rate (any dividends are not yet included).